Close
  • TSX
  • STEP
  • Expand
    STEP
    Volume
    Market Cap
    52 Wk High
    52 Wk Low
    More Stock Info
  • LinkedIn
  • Facebook
  • Instagram
  • YouTube
Investors

News Releases

August 12, 2021

STEP Energy Services Ltd. Reports Second Quarter 2021 Results

CALGARY, Alberta, Aug. 11, 2021 (GLOBE NEWSWIRE) --  STEP Energy Services Ltd. (the “Company” or “STEP”) is pleased to announce its financial and operating results for the three and six months ended June 30, 2021. The following press release should be read in conjunction with the management’s discussion and analysis (“MD&A”) and unaudited condensed consolidated interim financial statements and notes thereto as at June 30, 2021 (the “Financial Statements”). Readers should also refer to the “Forward-looking information & statements” legal advisory and the section regarding “Non-IFRS Measures” at the end of this press release. All financial amounts and measures are expressed in Canadian dollars unless otherwise indicated. Additional information about STEP is available on the SEDAR website at www.sedar.com, including the Company’s Annual Information Form for the year ended December 31, 2020 dated March 17, 2021 (the “AIF”).

CONSOLIDATED HIGHLIGHTS

FINANCIAL REVIEW        

($000s except percentages and per share amounts)

Three months endedSix months ended
June 30, June 30, March 31, June 30,
  2021  2020  2021  2021  2020 
Consolidated revenue$107,546 $40,644 $136,812 $244,358 $235,014 
Net loss$(10,582)$(40,348)$(7,944)$(18,526)$(92,552)
Per share-basic$(0.16)$(0.60)$(0.12)$(0.27)$(1.38)
Per share-diluted$(0.16)$(0.60)$(0.12)$(0.27)$(1.38)
Weighted average shares – basic 68,051,699  67,236,580  67,720,318  67,886,996  67,090,259 
Weighted average shares – diluted 68,051,699  67,236,580  67,720,318  67,886,996  67,090,259 
Adjusted EBITDA (1)$11,676 $(3,467)$15,960 $27,636 $19,336 
Adjusted EBITDA % (1) 11% (9%) 12% 11% 8%

(1) See Non-IFRS Measures. “Adjusted EBITDA” is a financial measure not presented in accordance with IFRS and is equal to net (loss) income after finance costs, depreciation and amortization, loss (gain) on disposal of property and equipment, current and deferred income tax provisions and recoveries, share-based compensation, transaction costs, foreign exchange forward contract (gain) loss, foreign exchange (gain) loss, and impairment losses. “Adjusted EBITDA %” is calculated as Adjusted EBITDA divided by revenue.

($000s except shares and per share amounts)    June 30, December 31,
    2021  2020
Cash and cash equivalents$2,974 $1,266
Working capital (including cash and cash equivalents) (2)$(164,357)$44,646
Working capital (reflecting the subsequent event at August 3, 2021) (2)$19,660 $44,646
Total assets$445,105 $479,859
Total long-term financial liabilities (2)$11,358 $216,627
Total long-term financial liabilities (including loans and borrowings)$195,375 $216,627
Net debt (2)$197,013 $208,735
Shares outstanding68,091,947  67,713,824

(2) See Non-IFRS Measures. “Working capital”, “Total long-term financial liabilities” and “Net debt” are financial measures not presented in accordance with IFRS. “Working capital” is equal to total current assets less total current liabilities. “Total long-term financial liabilities” is comprised of Long-term Loans and borrowings, Long-term lease obligations and Other liabilities. “Net debt” is equal to loans and borrowings before deferred financing charges less cash and cash equivalents.

SECOND QUARTER 2021 OVERVIEW
The second quarter of 2021 continued the momentum generated in the first quarter as vaccination rates increased which led to further relaxation of the measures previously implemented to manage the COVID-19 virus and related variants. The attempts to return to pre-COVID societal and economic activity have resulted in commodity inventory draw downs as global oil production has lagged demand recovery. Production increases have been gradual due to a disciplined approach by the Organization of Petroleum Exporting Countries (“OPEC”), Russia and certain other oil-producing countries (collectively “OPEC+”) combined with U.S. sanctions on Iran and Venezuela curtailing supply. This resulted in increased commodity prices through the quarter with West Texas Intermediate (“WTI”) crude oil spot pricing averaging $65.95 USD/barrel, an increase of 135% compared to the same quarter last year. The improved commodity price environment led to increased drilling activity in the U.S. with rig counts increasing 15% over the same period last year. Natural gas prices remained stable quarter over quarter with AECO-C spot price averaging $3.10 CAD/MMBtu, representing a 55% increase over the second quarter of 2020.

(unaudited)Three months ended
 June 30,March 31,December 31,September 30,June 30,
  2021 2021 2020 2020 2020
AECO-C Spot Average Price (CAD/MMBtu)$3.10$3.10$2.66$2.26$2.00
WTI – Average Price (USD/bbl)$66.19$58.04$42.72$40.88$28.04
WCS – Average Price (USD/bbl)$53.29$46.21$31.44$31.15$19.93
Condensate – Average Price (USD/bbl)$64.87$59.16$43.08$38.77$23.18
Average Exchange Rate (USD/CAD)$0.81$0.79$0.77$0.75$0.72
Canadian Average Drilling Rig Count 72 145 88 47 25
U.S. Average Drilling Rig Count 450 393 311 254 392

Source: PSAC, Bank of Canada, Baker Hughes

STEP’s second quarter of 2021 was reflective of the ongoing economic recovery with revenue increasing by 165% from the same period last year which saw an unprecedented slowdown of activity caused by responses to the COVID-19 Pandemic. STEP was able to achieve stronger utilization in Canadian operations than expected, despite the seasonal industry slowdowns typically experienced during spring break-up, as the higher drilling activity levels from the first quarter of 2021 combined with limited staffed equipment available resulted in a carry over of completions activity. During second quarter 2021, U.S. operations enjoyed steady demand for our fracturing services, however, coiled tubing services were impacted by intermittent activity as the market remained in an over-supply position. Despite the challenges, U.S. operations performed in line with expectations and gained momentum going into the third quarter with strong execution from our field operations. Trends that continued to develop in second quarter of 2021 were global supply chain constraints (steel, long lead times for equipment parts) and shortages of labour.

FINANCIAL HIGHLIGHTS – SECOND QUARTER AND YEAR TO DATE JUNE 30

  • Financial Position and Liquidity:
    • Repaid $10.0 million of the term loan facility during second quarter 2021.
    • Cash and cash equivalents of $3.0 million (December 31, 2020 - $1.3 million)
    • Working capital (reflecting the subsequent event at August 3, 2021) remained positive at $19.7 million (December 31, 2020 - $44.6 million)
    • Complied with all financial and non-financial covenants under our Credit Facilities as at June 30, 2021 (see CAPITAL MANAGEMENT – Debt in the Company’s August 11, 2021 MD&A).
  • Consolidated revenue was $107.5 million and $244.4 million for the three and six months ended June 30, 2021, compared to $40.6 million and $235.0 million in the same periods of the prior year, an increase of 165% for the three months ended June 30, 2021 and an increase of 4% for the six months ended June 30, 2021. The increased revenue was a result of increased demand and improved commodity prices spurring drilling and completions activity as the North American economies continued to recover from the Pandemic.
  • Consolidated net loss for the three and six months ended June 30, 2021 was $10.6 million and $18.5 million, respectively, compared to a net loss of $40.3 million and $92.6 million for the same periods in 2020. The reduced net losses are due to higher revenue related to increased activity and the resizing of the organization for the anticipated level of activity. The net losses for the three and six months ended June 30, 2020 included $58.8 million and $72.3 million in non-cash impairment charges to property and equipment, respectively. No impairments or impairment reversals were recognized during the three and six months ended June 30, 2021.
  • For the three and six months ended June 30, 2021, Adjusted EBITDA was $11.7 million (11% of revenue) and $27.6 million (11% of revenue), respectively, compared to a $3.5 million loss (negative 9% of revenue) and $19.3 million (8% of revenue) for the same periods in the prior year.
  • STEP incurred negligible severance expenses for the three and six months ended June 30, 2021 compared to $1.4 million and $3.3 million for the same periods in the prior year.
  • For the three months ended June 30, 2021, the Company recognized $1.9 million (June 30, 2020 - $3.1 million) in grants under the Canada Emergency Wage Subsidy (“CEWS”) program as a reduction of employee costs. For the six months ended June 30, 2021, the Company recognized $5.7 million in grants from CEWS as a reduction of employee costs compared to $3.1 million for the same period in the prior year.
  • On August 3, 2021, STEP entered into an agreement with its banking syndicate to extend the maturity date of its Credit Facilities to July 30, 2023, as well as amending and extending the Covenant Relief Period (as defined in the Credit Facilities) for certain covenant provisions therein.
    • Because the agreement was approved after June 30, 2021, but before the release of STEP’s Financial Statements, IFRS requires STEP to classify all amounts outstanding under the facility as a current liability at June 30, 2021.
    • Effective August 3, 2021, with the signing of the Second Amending Agreement, STEP reclassified the June 30, 2021 balance of $184.0 million in outstanding loans and borrowings from current liabilities to long-term liabilities. STEP is scheduled to begin making repayments on March 31, 2022 and each quarter thereafter. Therefore, the first and second quarter 2022 repayments, amounting to an aggregate of $14.0 million, will remain a current liability.

FINANCIAL HIGHLIGHTS – SEQUENTIAL QUARTERS

  • Consolidated revenue in the second quarter of 2021 decreased to $107.5 million from $136.8 million in first quarter 2021. The second quarter saw decreased activity levels in Canada compared to the previous quarter due to the seasonal industry slowdown experienced during spring break-up. The U.S. operations saw an improvement quarter over quarter with increased utilization and modest pricing improvements.
  • Consolidated net loss in second quarter 2021 was $10.6 million compared to a net loss of $7.9 million in first quarter 2021. The increased net loss in second quarter 2021 was a result of decreased revenue due to the seasonal reduction in activity in Canada. We are also seeing increasing labour costs resulting from increases in economic activity resulting in competition for staff.
  • Consolidated Adjusted EBITDA of $11.7 million or 11% of revenue, decreased from $16.0 million or 12% of revenue in first quarter 2021 as the reduced revenue was combined with inflationary pressure on the operating cost structure.
  • During second quarter 2021, the Company received $1.9 million in grants under the CEWS program. This compares to first quarter 2021, when the Company received $3.8 million in grants under the CEWS program.

INDUSTRY CONDITIONS & OUTLOOK

INDUSTRY CONDITIONS
The first half of 2021 was a positive improvement over 2020 which was a difficult year for the North American oil and gas services industry. Increased vaccination rates globally combined with billions of dollars in governmental economic stimulus programs have supported a modest rebound of global economic activity resulting in a recovery in crude oil demand. Although activity levels have improved, they have not reached pre-Pandemic levels.

We believe that the global economic recovery is taking hold and increased drilling and completions will be needed to meet increased demand for crude oil in the back half of 2021 and throughout 2022. Higher and more stable commodity prices are being supported by recovering global crude oil demand and should result in an increase in North American E&P company capital programs as operators will need to offset production decline rates. In the U.S., we have seen private companies taking the lead in completions activity spurred, in part, by the higher-than-expected commodity prices.

The Canadian market demand and supply for coiled tubing and fracturing equipment is largely balanced. In the U.S, the gap between available fracturing equipment and demand for fracturing equipment is reaching equilibrium. Some major industry participants are predicting that demand for and availability of equipment will tighten faster than previously expected as equipment attrition undertaken over the last two years and labour tightness limit the amount of equipment available to the market. Demand for low emissions equipment is high and supply is limited. Pressure pumpers are also experiencing increased costs for steel, parts, and labour shortages. Pricing will have to continue increasing to cover not only inflationary costs but also enhancements to equipment.

Some industry participants have recently indicated that they expect that the global economic recovery will trigger an international energy industry super-cycle that should lead to higher activity levels and wider margins. Recently, our clients, particularly in the U.S., have begun inquiring as to longer term arrangements for services provided by STEP, as a result of growing concerns for equipment availability for 2022 programs.

The global availability of crude oil and pricing will continue to be affected by the discipline of OPEC+ members as the organization recently agreed to increase production by 400,000 bbl/day each month from August through December 2021. OPEC+ recently settled internal disputes over imposed production limits by allowing further production increases in early 2022.

Some uncertainty continues as the COVID-19 delta variant spreads and other COVID-19 variants could evolve. North American and global economic recovery could be threatened by governments re-imposing restrictions to mitigate the spread of new COVID-19 variants. Early indications from various European nations point to potential lock downs in the fall if cases continue to rise. This gives rise to concerns over slow downs in consumer spending with particular focus on deterioration in industrial, travel, and transportation demand.

North American pressure pumping pricing can be described as periods of discipline followed by bursts of aggressive pricing to gain or retain market share. Canadian pricing remains sensitive to equipment additions and despite many industry players indicating pricing will need to recover before more equipment will be activated, major players have signaled their intention to stand up equipment. U.S. pricing has seen improvements, at first to cover the increasing cost profiles, and more recently to improve profitability and fund investment in new capacity, but overall pricing recovery has been impacted by the rate of equipment reactivation and the new capacity coming to market. Some service providers have invested in advanced technologies that align with client’s Environmental, Social and Governance (“ESG”) strategies or reduce overall completion costs. The equipment using these advanced technologies is able to earn premiums over conventional equipment, however, current market pricing doesn’t support a return on capital required for a large-scale buildout of such equipment. With the current balance of the market, we expect pricing to remain at current levels in Canada and improve modestly in the U.S. through the remainder of 2021.

THIRD QUARTER 2021 OUTLOOK
In Canada, results from the second quarter of 2021 surpassed expectations as this period is normally characterized by significant reductions in activity as weather conditions and government regulations restrict mobilizations of drilling and completions equipment. The market remains competitive and attempts to achieve meaningful price recovery beyond cost inflation have been met with resistance. In the third quarter, STEP’s Canadian operations are expected to continue to build off Q2 activity levels as our clients restart their drilling and completions programs. Staffing equipment has become a significant constraint on operations and management is taking steps to attract and retain top talent. STEP’s strong execution and top tier dual-fuel fleet capabilities that improve cost efficiencies and support ESG programs continue to differentiate the Company from its peers. STEP continues to upgrade its fleet with the rollout of our idle reduction equipment. This important initiative reduces the environmental impact of STEP’s operating fleets by reducing idling time and reducing fleet emissions, all the while saving on fuel and repairs and maintenance expenses.

STEP’s U.S. operations had an improved second quarter that built momentum for a more constructive view to the third quarter. Drilling and completions activity remains strong and demand for equipment is allowing for some pricing increases. Fracturing has visibility of utilization for the existing equipment compliment and the Company expects to reactivate a third fracturing crew in the third quarter to meet client demand. STEP now has 52,250 horsepower (“HP”) of fracturing equipment in the U.S. with dual-fuel capabilities following the conversion of one of its U.S. operating fleets undertaken during the second quarter. There is significant interest in these units and STEP has been able to charge a premium for their use.

U.S. Coiled tubing services have been challenged by aggressive pricing by localized suppliers but these pressures started to subside in the later part of the quarter. The third quarter is expected to see opportunities for fleet expansion and continued price recovery. Like Canada, field personnel staffing challenges remain a significant constraint to returning equipment to the field.

FULL YEAR 2021 OUTLOOK
Canadian activity in the second half of 2021 is expected to have a strong start in the third quarter and transition to intermittent activity for the fourth quarter consistent with prior fourth quarters. STEP’s strategic clients have asked for commitments for the balance of the year and into 2022 but capital decisions are being made on a project-to-project basis. Pricing is expected to remain competitive, but STEP has largely been able to achieve increases to cover the effects of inflation. STEP’s Canadian operations are expected to maintain existing operating capacity and will continue to monitor and adjust capacity based on near-term demand outlook.

U.S. operations are expected to benefit from the increased drilling and completions activity supported by strong commodity prices and the reactivation of the third fracturing crew. STEP aligned itself with strategic clients to ensure a base level of utilization for the balance of the year, and barring any negative events or economic shutdowns, U.S. operations are expected to end the year with improved results. Pricing improvements are expected to take affect in the third quarter and capacity expansion will be primarily dependent on attracting and retaining quality staff.

CAPITAL EXPENDITURES
During second quarter 2021 the Company approved an additional $5.4 million in optimization and maintenance capital to support the reactivation and maintenance capital costs of the third U.S. fracturing crew, and to enhance the Company’s fire suppression capabilities for its U.S. fracturing services. Prior to this increase, STEP’s 2021 capital program was $33.7 million comprised of $28.8 million maintenance capital and $4.9 million of optimization capital. The total approved capital program is now $39.1 million comprised of $31.5 million maintenance capital and $7.6 million of optimization capital. STEP will continue to evaluate and manage its manned equipment and capital program based on market demand for STEP’s services.

SUBSEQUENT EVENT
August 3, 2021, STEP entered into a Second Amending Agreement with a syndicate of financial institutions to extend the maturity date of its Credit Facilities to July 30, 2023, as well as amended and extended the Covenant Relief Period (as defined in the Credit Facilities) for certain covenant provisions therein. See CAPITAL MANAGEMENT – Debt in the Company’s August 11, 2021 MD&A for details.

CANADIAN FINANCIAL AND OPERATIONS REVIEW

STEP has a fleet of 16 coiled tubing units in the WCSB. The Company’s coiled tubing units were designed to service the deepest wells in the WCSB. STEP’s fracturing business primarily focuses on the deeper, more technically challenging plays in Alberta and northeast British Columbia. STEP has 282,500 HP, of which 15,000 HP will require capital for refurbishment. Approximately 132,500 HP of the available HP has dual-fuel capabilities. The Company deploys or idles coiled tubing units or fracturing horsepower as dictated by the market’s ability to support targeted utilization and economic returns.

($000’s except per day, days, units, proppant pumped and HP)Three months endedSix months ended

 
 June 30, June 30, March 31, June 30, 
  2021  2020  2021  2021  2020 
Revenue:          
Fracturing$55,321 $3,397 $87,829 $143,150 $86,948 
Coiled tubing 17,844  10,491  21,533  39,377  35,690 
  73,165  13,888  109,362  182,527  122,638 
Expenses:          
Operating expenses 65,943  23,003  96,126  162,071  123,507 
Selling, general and administrative 1,778  931  1,764  3,543  2,955 
Results from operating activities$5,444 $(10,046)$11,472 $16,913 $(3,824)
Add non-cash items:          
Depreciation 9,792  10,595  9,239  19,031  25,464 
Share-based compensation 397  423  820  1,218  223 
Adjusted EBITDA (1)$15,633 $972 $21,531 $37,162 $21,863 
Adjusted EBITDA % (1) 21% 7% 20% 20% 18%
Sales mix (% of segment revenue)          
Fracturing 76% 24% 80% 78% 71%
Coiled tubing 24% 76% 20% 22% 29%
Fracturing services          
Fracturing revenue per operating day(1)$317,937 $242,643 $313,675 $315,308 $213,108 
Number of fracturing operating days (2) 174  14  280  454  408 
Proppant pumped (tonnes) 275,000  9,000  327,000  602,000  391,000 
Stages completed 1,942  113  3,213  5,155  4,544 
Proppant pumped per stage 142  80  102  117  86 
Horsepower (“HP”)          
Active pumping HP, end of period 200,000  50,000  200,000  200,000  50,000 
Idle pumping HP, end of period 82,500  232,500  82,500  82,500  232,500 
Total pumping HP, end of period (3) 282,500  282,500  282,500  282,500  282,500 
Coiled tubing services          
Coiled tubing revenue per operating day(1)$58,697 $51,936 $46,709 $51,473 $45,815 
Number of coiled tubing operating days (2) 304  202  461  765  779 
Active coiled tubing units, end of period 7  5  7  7  5 
Idle coiled tubing units, end of period 9  11  9  9  11 
Total coiled tubing units, end of period 16  16  16  16  16 

(1) See Non-IFRS Measures.
(2) An operating day is defined as any coiled tubing and fracturing work that is performed in a 24-hour period, exclusive of support equipment.
(3) Represents total owned HP in Canada, of which 200,000 HP is currently deployed and 15,000 of the remainder requires certain maintenance and refurbishment.

SECOND QUARTER 2021 COMPARED TO SECOND QUARTER 2020
The second quarter of 2021 was a substantial improvement over the same period in the prior year for Canadian operations. Revenue increased by $59.3 million over second quarter 2020 with fracturing revenue increasing $51.9 million and coiled tubing revenue increasing $7.4 million. The increase in revenue was attributable to higher drilling and completions activity and client mix in the WCSB. The increased activity was a result of commodity prices increasing from the lows experienced in the second quarter of 2020, which improved economics for clients.

Adjusted EBITDA for the second quarter of 2021 was $15.6 million (21% of revenue) compared to $1.0 million (7% of revenue) in the second quarter of 2020. The improved margins are a result of a lower support cost structure as headcount reductions in selling, general, and administrative (“SG&A”) implemented in 2020 were largely maintained into second quarter 2021. The reduction in costs due to fewer employees was partly offset by the reversal of wage rollbacks effective January 1, 2021. Further improving margins was the absence of severance costs, which totaled $1.3 million in second quarter 2020. Second quarter 2021 included $1.8 million in CEWS (June 30, 2020 - $2.8 million) which was recorded as a reduction in employee costs.

Fracturing

Canadian fracturing operated four spreads in second quarter 2021, compared to two spreads in second quarter 2020, as the increase in drilling activity improved demand for services. Activity benefited from strategic clients remaining more active in the second quarter which is normally characterized by an industry wide slow down because of spring break-up. Further improving utilization was a large pad that moved out of STEP’s first quarter 2021 schedule and into second quarter 2021. This contributed to an increase in operating days from 14 in second quarter 2020 to 174 in second quarter 2021.

The sharp increase in activity resulted in revenue increasing $51.9 million compared to second quarter 2020. Revenue per operating day also increased to $317,937 from $242,643 in second quarter 2020 due to client and formation mix. STEP worked with clients on large pad operations with multiple wells, driving up horsepower and support equipment requirements while treatment designs for the formations stimulated resulted in increased proppant pumped. The increased revenue combined with cost efficiencies related to working on larger pads resulted in improved direct margins.

STEP capitalizes fluid ends when their estimated useful life exceeds 12 months. Fluid ends are capitalized in Canada based on a review of usage history. However, had the Company expensed fluid ends, the operating expenses for the three months ended June 30, 2021 would have been approximately $0.9 million higher.

Coiled Tubing

Canadian coiled tubing also benefited from an uncharacteristically active spring break-up period with 304 operating days compared to 202 in the second quarter 2020. Operations staffed seven coiled tubing units, on average, during the second quarter of 2021 as compared to five units in the same period of the prior year. The increase in operating days resulted in revenue of $17.8 million for the three months ended June 30, 2021, an increase of 70% from revenue of $10.5 million in the same quarter in 2020. The increase in staffed units combined with reversals of compensation reductions implemented in 2020 resulted in increased payroll expenses, driving a slight reduction in direct margin as a percentage of revenue.

SECOND QUARTER 2021 COMPARED TO FIRST QUARTER 2021
Total Canadian revenue for the second quarter of 2021 of $73.2 million decreased from revenue of $109.4 million in the first quarter 2021. Operations carried some of the momentum generated in the first quarter 2021 into the second quarter, despite a 50% reduction in rig count from 145 in the first quarter 2021 to 72 in the second quarter 2021. The second quarter is traditionally characterized by an industry wide slowdown because of spring break-up. Fracturing revenue decreased $32.5 million while coiled tubing revenue decreased $3.7 million.

Adjusted EBITDA for the second quarter of 2021 was $15.6 million (21% of revenue) compared to $21.5 million (20% of revenue) from the first quarter of 2021. Margins were impacted by higher payroll expenses which were offset by a material reduction in outsourced logistics as the reduction in activity provided an opportunity to internally source proppant hauling. Second quarter 2021 included $1.8 million in CEWS which was a substantial reduction from the $3.6 million recorded in first quarter 2021.

Revenue and Adjusted EBITDA in the second quarter of 2021 exceeded expectations due to higher activity levels as limited equipment availability and congested schedules in the first quarter pushed client capital projects into the second quarter.

Fracturing

The Company had enough work secured to continue operating four fracturing spreads in second quarter 2021, however, the arrival of spring breakup resulted in a 38% decrease in operating days from 280 in the three months ended March 31, 2021 to 174 days in the three months ended June 30, 2021. STEP pumped 275,000 tonnes of proppant and 142 tonnes per stage in second quarter 2021 compared to 327,000 tonnes and 102 tonnes per stage in first quarter 2021.

Coiled Tubing

Coiled tubing was able to continue to staff seven coiled tubing units as the operations benefited from increased milling and various other interventions that result from higher drilling and fracturing activity. Second quarter 2021 operating days of 304 decreased from 461 in first 2021 but were above the tempered expectations related to the spring break-up slow down.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
Revenue for Canadian operations for the first half of 2021 increased $59.9 million over the same period in the prior year as the North American economies began recovering from the historic drops experienced because of the Pandemic. The improvement was led by fracturing operations which saw a $56.2 million increase in revenue with only an 11% increase in operating days. The 48% increase in revenue per operating day was aided by an increase in the amount of STEP supplied proppant work relative to 2020. Coiled tubing experienced a $3.7 million increase in revenue despite a 2% reduction in operating days due to an increase in ancillary fluid pumping services and modest rate recovery.

Adjusted EBITDA for the six months ended June 30, 2021 was $37.2 million (20% of revenue) compared to $21.9 million (18% of revenue) from the same period in 2020. Margins were impacted by inflationary pressures on material costs due to global supply chain constraints as well as the reversal of wage reductions at the start of 2021. These were offset by the increased revenue combined with a leaner overhead and support structure implemented by management at the end of the first quarter of 2020. Margins for the six months ended June 30, 2020, were negatively impacted by $4.7 million in severance expense related to right-sizing the operations at the onset of the Pandemic. Canadian operations recorded $5.4 million in CEWS for the six months ended June 30, 2021 compared to $2.8 million in the same period in 2020.

UNITED STATES FINANCIAL AND OPERATIONS REVIEW

STEP’s U.S. business commenced operations in 2015 with coiled tubing services. STEP has a fleet of 13 coiled tubing units in the Permian and Eagle Ford basins in Texas, the Bakken shale in North Dakota, and the Uinta-Piceance and Niobrara-DJ basins in Colorado. STEP entered the U.S. fracturing business in April 2018. The U.S. fracturing business has 207,500 HP, which primarily operates in the Permian and Eagle Ford basins in Texas. Management continues to adjust capacity and regional deployment to optimize utilization, efficiency and returns.

($000’s except per day, days, units, proppant pumped and HP)Three months endedSix months ended

 
 June 30, June 30, March 31, June 30, 
  2021  2020  2021  2021  2020 
Revenue:          
Fracturing$19,036 $20,483 $16,425 $35,461 $80,925 
Coiled tubing 15,345  6,273  11,025  26,370  31,451 
  34,381  26,756  27,450  61,831  112,376 
Expenses:          
Operating expenses 40,218  38,711  38,029  78,246  125,626 
Selling, general and administrative 1,546  1,656  1,406  2,953  3,952 
Results from operating activities$(7,383)$(13,611)$(11,985)$(19,368)$(17,202)
Add non-cash items:          
Depreciation 8,133  11,112  8,691  16,825  23,039 
Share-based compensation 272  71  277  549  (266)
Adjusted EBITDA (1)$1,022 $(2,428)$(3,017)$(1,994)$5,571 
Adjusted EBITDA % (1) 3% (9%) (11%) (3%) 5%
Sales mix (% of segment revenue)          
Fracturing 55% 77% 60% 57% 72%
Coiled tubing 45% 23% 40% 43% 28%
Fracturing services          
Fracturing revenue per operating day(1)$130,384 $347,169 $122,575 $126,646 $307,700 
Number of fracturing operating days (2) 146  59  134  280  263 
Proppant pumped (tonnes) 191,000  90,000  189,000  380,000  383,000 
Stages completed 816  431  909  1725  1,810 
Proppant pumped per stage 234  209  208  220  212 
Horsepower (“HP”)          
Active pumping HP, end of period 110,000  65,000  110,000  110,000  65,000 
Idle pumping HP, end of period 97,500  142,500  97,500  97,500  142,500 
Total pumping HP, end of period (3) 207,500  207,500  207,500  207,500  207,500 
Coiled tubing services          
Coiled tubing revenue per operating day(1)$36,363 $42,385 $35,000 $35,780 $44,802 
Number of coiled tubing operating days (2) 422  148  315  737  702 
Active coiled tubing units, end of period 8  4  7  8  4 
Idle coiled tubing units, end of period 5  9  6  5  9 
Total coiled tubing units, end of period 13  13  13  13  13 

(1) See Non-IFRS Measures.
(2) An operating day is defined as any coiled tubing and fracturing work that is performed in a 24-hour period, exclusive of support equipment.
(3) Represents total owned HP in the U.S.

SECOND QUARTER 2021 COMPARED TO SECOND QUARTER 2020
The second quarter 2021 was a key milestone for the U.S. as the operations generated positive Adjusted EBITDA for the first time since the unprecedented downturn in economic activity brought on by the Pandemic at the end of first quarter 2020. During second quarter 2021, the U.S. retrofitted 52,250 HP of fracturing pumpers with dual-fuel equipment that uses natural gas substitution to minimize diesel consumption and reduce the impact on the environment. These capital expenditures were viewed favourably by our client base as they looked to strengthen their ESG initiatives and have resulted in pricing increases for the fracturing operations. Revenue of $34.4 million during the three months ended June 30, 2021 increased from $26.8 million for the three months ended June 30, 2020, an increase of 28%. Fracturing revenue was $19.0 million in second quarter 2021 compared to $20.5 million in second quarter 2020. Coiled tubing revenue was $15.3 million in second quarter 2021 compared to $6.3 million in second quarter 2020.

Adjusted EBITDA was $1.0 million (3% of revenue) for the three months ended June 30, 2021 compared to an Adjusted EBITDA loss of $2.4 million (negative 9% of revenue) for the three months ended June 30, 2020. Margins were impacted by increased materials costs due to inflation and global supply chain delays and compensation increases as hiring and retaining experienced personnel is becoming costlier.

Fracturing

During the second quarter of 2021, STEP U.S. operated two fracturing spreads, an increase from second quarter 2020 when the onset of the Pandemic led to scaling back operating spreads to match the reductions in activity. The improved commodity prices have led to increased drilling and completions activity resulting in 146 operating days in second quarter 2021 compared to 59 in second quarter 2020.

Revenue per operating day decreased to $130,384 in second quarter 2021 compared to $347,169 in second quarter 2020 as the client and contract mix resulted in substantial reductions in proppant revenue as clients chose to source their own proppant. STEP was able to achieve modest pricing increases toward the end of the second quarter 2021 but the market remains highly competitive.

Coiled Tubing

Coiled tubing saw improved utilization with 422 operating days during the second quarter of 2021 while operating eight coiled tubing units compared to 148 operating days on four units in the second quarter of 2020. While activity was sporadic through the second quarter in west and south Texas, STEP was able to capitalize on spot market opportunities due to market presence and reputation for execution. Coiled tubing operations also gained some market share in the Bakken and Rockies regions and STEP expects to carry this forward into the third quarter while pursuing commitments from clients with sizeable work scopes. Like fracturing, coiled tubing faces pricing pressures with a continued over supply of equipment and aggressive pricing practices as competitors attempt to gain market share. Revenue per day during second quarter 2021 was $36,363 per day compared to $42,385 per day in second quarter 2020.

SECOND QUARTER 2021 COMPARED TO FIRST QUARTER 2021
U.S. revenue of $34.4 million for the three months ended June 30, 2021 increased $6.9 million from the first quarter 2021 revenue of $27.5 million. The increase in revenue was a result of strong commodity prices continuing to drive drilling and completions activity recovery. Fracturing contributed $2.6 million to the increased revenue while coiled tubing contributed $4.3 million.

Adjusted EBITDA for the second quarter of 2021 was $1.0 million or 3% of revenue, an improvement over an Adjusted EBITDA loss of $3.0 million or negative 11% of revenue in the first quarter of 2021. The improvement in results can be attributed to increased revenue covering the fixed cost base of U.S. operations. Overhead and SG&A cost management measures implemented in 2020 continued through the quarter.

Fracturing

The highly competitive market for fracturing services in the U.S. limited STEP to operating two fracturing spreads in the second quarter of 2021, however, pricing improvements and a multitude of opportunities forgone due to scheduling conflicts have presented an opportunity to add an additional spread in the third quarter. Fracturing saw 146 operating days in the second quarter 2021 representing a slight improvement from 134 in the first quarter 2021. Revenue per operating day increased from $122,575 in first quarter 2021 to $130,384 in second quarter 2021 due to job mix and pricing recovery.

Coiled Tubing

STEP U.S. coiled tubing saw a material improvement in revenue from the first quarter of 2021 as activity levels increased. Operating days increased from 315 in first quarter of 2021 to 422 in second quarter of 2021. Coiled tubing revenue per day of $36,363 in second quarter 2021 increased from $35,000 per day in the first quarter of 2021 as pricing improvements began to materialize. The cost profile remained relatively stable quarter over quarter which led to improved operating margins with the increase in revenue.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
U.S. operations had revenue of $61.8 million during the six months ended June 30, 2021, a 45% decrease from revenue of $112.4 million during the six months ended June 30, 2020. STEP U.S. posted improving results at the start of 2020 until the unprecedented drop-in economic activity caused by the Pandemic reduced commodity prices to all time lows which led to dramatically lower drilling and completions activity. In 2020, with the on-set of the industry slowdown, STEP immediately adjusted the size of operations and focused on factors within the Company’s control. While not at pre-Pandemic levels, recent improvements in revenue and operating margins are positive indicators of a recovery.

Adjusted EBITDA loss for the six months ended June 30, 2021 was $2.0 million (negative 3% of revenue) compared to Adjusted EBITDA of $5.6 million (5% of revenue) from the same period in 2020. Margins were impacted by the significant reduction in revenue combined with inflationary pressures on material costs due to the global supply chain constraints as well as compensation cost increases due to a competitive labour environment.

CORPORATE FINANCIAL REVIEW

The Company’s corporate activities are separated from Canadian and U.S. operations. Corporate operating expenses include expenses related to asset reliability and optimization teams, general and administrative costs include costs associated with the executive team, the Board of Directors, public company costs, and other activities that benefit Canadian and U.S. operating segments collectively.

($000’s)Three months endedSix months ended

 
 June 30,  June 30,  March 31, June 30, 
  2021  2020  2021  2021  2020 
Expenses:          
Operating expenses$278 $140 $214 $491 $773 
General and administrative 6,771  3,580  5,205  11,974  8,848 
Results from operating activities$(7,049)$(3,720)$(5,419)$(12,465)$(9,621)
Add non-cash items:          
Depreciation 155  196  173  327  412 
Share-based compensation 1,915  1,513  2,692  4,606  1,111 
Adjusted EBITDA (1)$(4,979)$(2,011)$(2,554)$(7,532)$(8,098)
Adjusted EBITDA % (1,2) (5%) (5%) (2%) (3%) (3%)

(1) See Non-IFRS Measures.
(2) Adjusted EBITDA percentage calculated using the consolidated revenue for the period.

SECOND QUARTER 2021 COMPARED TO SECOND QUARTER 2020
Second quarter 2021 expenses of $7.0 million were $3.3 million higher than second quarter 2020 expenses of $3.7 million. The increase was comprised of $1.6 million of costs related to legal expenses and the settlement of a litigation matter as well as increases in compensation expenses. Compensation expenses were higher relative to second quarter 2020 which had temporary compensation rollbacks and eliminations of bonuses as a measure to reduce costs to manage the impacts of the Pandemic. Second quarter 2021 also experienced reductions in CEWS benefits ($0.1 million in second quarter 2021 compared to $0.3 million in second quarter 2020), increases to share-based compensation (“SBC”) of $0.4 million primarily due to marking to market cash-based long term incentive units (“LTIP”), and an increase in hiring costs. The Company largely maintained the headcount reductions implemented in the prior year to minimize support structure costs.

SECOND QUARTER 2021 COMPARED TO FIRST QUARTER 2021
Expenses from corporate activities were $7.0 million for the second quarter of 2021 compared to $5.4 million for the first quarter of 2021, an increase of $1.6 million. The quarter over quarter expense increase is primarily due to $1.6 million of costs related to legal expenses and the settlement of a litigation matter as well as increases in hiring costs and professional fees related to the proxy season. These increases were offset by a $0.8 million reduction in SBC. First quarter 2021 CEWS of $0.2 million were recorded as a reduction in wage expense compared to $0.1 million CEWS recorded in second quarter of 2021.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
Corporate expenses increased by $2.9 million from $9.6 million for the six months ended June 30, 2020 to $12.5 million for the six months ended June 30, 2021. SBC increased by $3.4 million due to marking to market the cash settled LTIP and the annual grants made June 1, 2021. Corporate costs also included $1.6 million of costs related to legal expenses and the settlement of a litigation matter as well as increases to compensation related to the reversal of rollbacks and bonus accruals. The increases were partially offset by a reduction in bad debt expense as the Company did not record a provision for the six months ended June 30, 2021 compared to $2.5 million for the same period in 2020. The six months ended June 30, 2020 also included severance expenses of $0.7 million as management reduced headcount as a measure to minimize the impacts of the Pandemic. CEWS benefits of $0.3 million were the same as the prior year as the program began in the second quarter of 2020.

NON-IFRS MEASURES

Please see the discussion in the Non-IFRS Measures section of the Company’s August 11, 2021 MD&A for the reconciliation of non-IFRS items to IFRS measures.

FORWARD-LOOKING INFORMATION & STATEMENTS

Certain statements contained in this Press Release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws (collectively, “forward-looking statements”). These statements relate to the expectations of management about future events, results of operations and the Company’s future performance (both operational and financial) and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential”, “objective” and “capable” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. While the Company believes the expectations reflected in the forward-looking statements included in this Press Release are reasonable, such statements are not guarantees of future performance or outcomes and may prove to be incorrect and should not be unduly relied upon.

In particular, but without limitation, this Press Release contains forward-looking statements pertaining to: 2021 and 2022 industry conditions and outlook, including potential changing activity levels and the impact thereof on the Company’s equipment reactivation plans, performance, revenue and cash flows; the potential for a global economic recovery; supply and demand for the Company’s and its competitors’ services; a strengthening commodity price outlook, including its effects on drilling activity levels and pricing for the Company’s services; COVID-19, COVID-19 variants and the related public health measures and their impact on energy demand and the Company’s financial position and business plans; client demand for dual-fuel and idle reduction capabilities; supply and demand for oilfield services and industry activity levels, including industry capacity, equipment levels, and utilization levels; the Company’s ability to meet all financial commitments including interest payments over the next twelve months; the effect of OPEC and OPEC+ agreements on crude oil availability and pricing; market uncertainty, and its effect on commodity prices; relaxation of COVID-19 related restrictions, the potential for another wave of COVID-19 infections, and the resulting impact on crude oil demand and the Company’s operations; the Company’s anticipated business strategies and expected success, including the potential reactivation of a third U.S. fracturing fleet and the level of operating capacity in Canada; the Company’s ability to upgrade its equipment; the Company’s ability to manage its capital structure; pricing received for the Company’s services, including the Company’s ability to increase pricing; the Company’s capital program in 2021 and management’s continued evaluation thereof; expectation of the Company’s ability to qualify and participate in the CEWS program; planned utilization of government financial support and economic stimulus programs; expected profitability, including future improvements to U.S. financial and operating results; expected income tax liabilities; adequacy of resources to funds operations, financial obligations and planned capital expenditures in 2021; planned deployment and staffing levels for the Company’s equipment; the Company’s ability to retain its existing clients; the monitoring of industry demand, client capital budgets and market conditions; client credit risk, including the Company’s ability to set credit limits, monitor client payment patterns, and to apply liens; and the Company’s expected compliance with covenants under its Credit Facilities, its ability to continue as a going concern, and its ability to satisfy its financial commitments and obtain relief from the lenders under its Credit Facilities; and the impact of litigation, on the Company.

The forward-looking information and statements contained in this Press Release reflect several material factors and expectations and assumptions of the Company including, without limitation: the Company will continue to conduct its operations in a manner consistent with past operations; the Company will continue as a going concern; the Company’s ability to manage the effects of the COVID-19 Pandemic and OPEC or OPEC+ related market uncertainty on the market for its services; industry and regulatory uncertainty caused by the new U.S. Presidential administration and potential changes to laws and regulations affecting the Company and its clients; the general continuance of current or, where applicable, assumed industry conditions; pricing of the Company’s services; the Company’s ability to market successfully to current and new clients; the Company’s ability to utilize its equipment; the Company’s ability to collect on trade and other receivables; the Company’s ability to obtain and retain qualified staff and equipment in a timely and cost effective manner; levels of deployable equipment; future capital expenditures to be made by the Company; the Company’s ability to meet dynamic requests of clients for longer term arrangements in response to equipment supply pressure; future funding sources for the Company’s capital program; the Company’s future debt levels; the availability of unused credit capacity on the Company’s credit lines; the impact of competition on the Company; the Company’s ability to obtain financing on acceptable terms; the Company’s continued compliance with financial covenants and the ability to obtain covenant relief; the amount of available equipment in the marketplace; and client activity levels and spending. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove correct.

Actual results could differ materially from those anticipated in these forward‐looking statements due to the risk factors set forth below and elsewhere in this Press Release: volatility of the oil and natural gas industry; global, national or local health concerns such as the COVID‐19 Pandemic and their impact on demand and pricing for the Company’s services, the Company’s supply chain, the continuity of the Company’s operations and the health of the Company’s workforce; competition in the oilfield services industry; availability of staff in the oilfield services industry; restrictions on access to capital; reliance on suppliers of raw materials, diesel fuel and component parts; reliance on equipment suppliers and fabricators; direct and indirect exposure to volatile credit markets; fluctuations in currency exchange rates; fluctuations in interest rates on floating rate loans and borrowings; merger and acquisition activity among the Company’s clients; reduction in the Company’s clients’ cash flows or ability to source debt or equity; federal, provincial or state legislative and regulatory initiatives that could result in increased costs and additional operating restrictions or delays; health, safety and environment laws and regulations may require the Company to make substantial expenditures or cause it to incur substantial liabilities; changes to government financial support and economic stimulus programs implemented to mitigate economic impacts of COVID‐19; loss of a significant client could cause the Company’s revenue to decline substantially; negative cashflows from operating activities; third party credit risk; hazards inherent in the oilfield services industry which may not be covered to the full extent by the Company’s insurance policies; difficulty in retaining, replacing or adding personnel; seasonal volatility due to adverse weather conditions; reliance on a few key employees; legal proceedings involving the Company; failure to maintain the Company’s safety standards and record; failure to continuously improve operating equipment and proprietary fluid chemistries; actual results differing materially from management estimates and assumptions; market uncertainties; and the risk factors set forth under the heading “Risk Factors” in the AIF and under the heading “Risk Factors and Risk Management” in the Company’s August 11, 2021 MD&A and the Annual MD&A.

Any financial outlook or future orientated financial information contained in this Press Release regarding prospective financial performance, financial position or cash flows is based on the assumptions about future events, including economic conditions and proposed courses of action based on management’s assessment of the relevant information that is currently available. Projected operational information, including the Company’s capital program, contains forward looking information and is based on a number of material assumptions and factors, as are set out above. These projections may also be considered to contain future oriented financial information or a financial outlook. The actual results of the Company’s operations will likely vary from the amounts set forth in these projections and such variations may be material. Readers are cautioned that any such financial outlook and future oriented financial information contains herein should not be used for purposes other than those for which it is disclosed herein.

The forward-looking information and statements contained in this Press Release speak only as of the date of the document, and none of the Company or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws. The reader is cautioned not to place undue reliance on forward-looking information.

ABOUT STEP

STEP is an oilfield service company that provides stand-alone and fully integrated fracturing, coiled tubing and wireline solutions. Our combination of modern equipment along with our commitment to safety and quality execution has differentiated STEP in plays where wells are deeper, have longer laterals and higher pressures.

Founded in 2011 as a specialized deep capacity coiled tubing company, STEP now provides an integrated solution for deep capacity coiled tubing and fracturing services to exploration and production (“E&P”) companies in Canada and the United States (“U.S.”). Our Canadian services are focused in the WCSB, while in the U.S., our services are focused in the Permian and Eagle Ford in Texas, the Uinta-Piceance, and Niobrara-DJ basins in Colorado and the Bakken in North Dakota.

Our four core values; Safety, Trust, Execution and Possibilities inspire our team of professionals to provide differentiated levels of service, with a goal of flawless execution and an unwavering focus on safety.

For more information please contact:

Regan Davis
Chief Executive Officer
 Michael Kelly
Executive Vice President &
Chief Financial Officer
  
Telephone: 403-457-1772

 Telephone: 403-457-1772  

Email: investor_relations@step-es.com
Web: www.stepenergyservices.com

 



Return to News Release Listing

Head Office

Bow Valley Square II
1200, 205 - 5th Ave SW
Calgary, AB T2P 2V7